Fed “Currency Swaps” with European Central Bank Ballooned from $400 million to $95 billion in December 2011

(Washington, DC) – Judicial Watch, the public interest group that investigates and fights government corruption, announced today that it has sued the Board of Governors for the Federal Reserve System and the Federal Open Market Committee (FOMC), a committee within the Federal Reserve, for records detailing the Fed’s December 2011 taxpayer-funded bailouts of European Banks. On December 14, 2011, Federal Reserve Chairman Ben Bernanke reportedly told Republican Senators that he did not have the intention or authority to use taxpayer dollars to bail out troubled European banks, but a “currency swap” program extended by the Fed on November 30, 2011, led to nearly $95 billion in loans to the European Central Bank in December 2011 alone. (Judicial Watch v. Board of Governors of the Federal Reserve System and Federal Open Market Committee (No. 1:12-cv-01114))

Under what is known as a “temporary U.S. dollar liquidity swap arrangement,” the Fed lends U.S. dollars to foreign central banks which then auction these dollars off to their local banks. The Fed’s stated intent for initiating the program was to ease lending for European Banks during the financial crisis. The Fed initiated the program in December 2007 and allowed it to expire in February 2010. In May 2010, the Fed rebooted the program and on November 30, 2011, extended it through February 1, 2013. This extension prompted a sharp increase from $400 million to $95 billion in loans in December 2011.

On January 3, 2012, Judicial Watch submitted Freedom of Information Act (FOIA) requests seeking communications between the Federal Reserve Board of Governors, the FOMC, the Federal Reserve Bank of New York and the European Central Bank related to the November 30, 2011, currency swap extension. Judicial Watch also seeks access to records describing the justification for extending the currency swap program, as well as individual details regarding each swap transaction.

Moreover, given that little information is available to the public regarding the identities of the recipients of currency swap funds, Judicial Watch also seeks, “any and all records identifying, describing, or setting forth the identity of any bank or financial institution and the collateral offered by the bank or financial institution,” between December 5, 2011, through December 31, 2011.

For all the transparency forced on the Federal Reserve by Congress and the courts, one of the central bank’s emergency-lending programs remains so secretive that names of borrowers may be hidden from the Fed itself. As part of a currency-swap plan active from 2007 to 2010 and revived to fight the European debt crisis, the Fed lends dollars to other central banks, which auction them to local commercial banks…While the transactions with other central banks are all disclosed, the Fed doesn’t track where the dollars ultimately end up, and European officials don’t share borrowers’ identities outside the continent.

The Federal Reserve Bank of New York reports that, as of March 31, the European Central Bank had $33 billion in outstanding swaps. The secrecy of these arrangements has been criticized by Gerald O’Driscoll, a former vice president of the Federal Reserve Bank of Dallas, as “bailing out European banks and, indirectly, spendthrift European governments. It is difficult to count the number of things wrong with this arrangement.”

The Federal Reserve Board of Governors and the FOMC both acknowledged receipt of Judicial Watch’s records request on January 3, 2012, and was required to respond by February 1, 2012. However, as of the date of Judicial Watch’s lawsuit, neither defendant has submitted a lawful response to Judicial Watch’s original FOIA request.

“Chairman Bernanke can dress it up in whatever language he chooses, but these ‘currency swaps’ are nothing more than massive bailouts of European banks,” said Judicial Watch President Tom Fitton. “That we have to sue to get basic information about this massive bailout speaks volumes about the dubious nature of this under the radar program.”